This brief reexamines Jeremy Siegel’s “Stocks for the Long Run” thesis in light of Edward McQuarrie’s recent research to explore how investment narratives are built and to encourage a deeper, more skeptical engagement with financial history.
Executive Summary
For decades, Jeremy Siegel’s “Stocks for the Long Run” thesis, that equities reliably outperform other assets over long time horizons, has served as a foundational pillar of modern finance. His famous chart, showing real (inflation-adjusted) returns for stocks, bonds, bills, gold, and cash stretching back to 1802, became a visual shorthand for the preeminence of equities. But what if the story supported by these data is less definitive than it appears? And what if the data themselves are not representative of what really happened?
In this CFA Institute Research Foundation brief, “Stocks for the Long Run? New Evidence, Old Debates,” author Paul McCaffrey, Principal, Paul McCaffrey Enterprises, revisits Siegel’s thesis through the lens of Edward McQuarrie’s scholarship, which gathers and interprets a rich history of nineteenth-century US stock and bond returns. McQuarrie’s findings — published in the Financial Analysts Journal — suggest that for much of the 1800s and early 1900s, stocks did not consistently outperform bonds. In fact, returns on the two asset classes were often roughly the same.
This revisionism prompted a conversation among financial thinkers, including McQuarrie, Jeremy Siegel, Rob Arnott, Hendrik Bessembinder, Elroy Dimson, Roger Ibbotson, and Laurence Siegel, who contributed the foreword and afterword to this brief. Their ideas, first discussed in a 2024 CFA Institute podcast and continued in private correspondence, form the basis of this brief.
Support Research for the Global Investment Community. Your donation raises professional excellence and enables the foundation to continue its important mission to fund, publish, and distribute in-depth, high quality, independent research.
But the brief is not merely a reassessment of the broader “Stocks for the Long Run” thesis. It asks more fundamental questions: How are financial histories constructed? What flaws might they have? What assumptions are embedded in the data on which we base our portfolio allocation and investment decisions? And how do simplified investment narratives and stylized charts become financial orthodoxy?
McQuarrie’s critique highlights the potential flaws of long-term datasets. Jeremy Siegel filled historical gaps with estimates — such as his 6.4% dividend yield assumption applied to equities in the early nineteenth century — whereas McQuarrie used exact dividend data that he collected using original records from early exchanges and brokerages. The result is a very different picture of nineteenth-century equity performance — one that casts doubt on the constancy of the equity risk premium.
Jeremy Siegel’s iconic chart presents total return indexes, in real (inflation-adjusted) terms, for US stocks, bonds, Treasury bills, gold, and the US dollar from 1802 to the present day.
Exhibit 1. Jeremy Siegel’s Iconic Chart
Source: Jeremy J. Siegel, Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies, 6th ed. (New York: McGraw-Hill, 2022); updated through year-end 2023.
Stocks clearly dominate in this rendition of the past. But McQuarrie’s new data show a lower return for stocks in the first half of the period studied. He demonstrated that stocks decisively outperformed bonds only in a few subperiods, a finding that casts doubt on Siegel’s thesis.
The implications extend beyond the stocks versus bonds question. Assumptions about inflation, gold returns, and the size effect — that small stocks outperform their larger counterparts — also rely on data wherein the use of long-term averages may mask structural shifts, changes in economic regimes, or sampling biases. For example, Hendrik Bessembinder’s research shows that a handful of stocks account for a disproportionate share of the equity market’s long-term gains. The distribution of returns is thus heavily skewed — and the narrative of average outperformance misses that nuance.
The brief also questions how much modern investors can rely on data from previous eras. Equities in the 1800s often resembled high-yield bonds, paying generous dividends but offering little or no capital appreciation. Today’s stocks, by contrast, derive much of their returns from what Arnott calls “revaluation alpha,” that part of the total equity return that has resulted from increases in the price/earnings multiple. Thus, comparing twenty-first-century stocks to their predecessors may be more apples to oranges than apples to apples.
In revisiting this historical arc, the brief does not seek to discredit equities as a growth asset. Rather, it encourages investors to approach long-term return expectations with humility, critical thinking, and an eye toward complexity. As Laurence Siegel writes in the foreword, “Financial history is useful not because it repeats itself, but because it reminds us how much things can change.”
In the end, this brief urges readers to treat investment narratives with caution. Behind every powerful chart lies a web of assumptions, and behind every average return lies a wide range of outcomes. Financial history, properly studied, is less a road map than a tool for asking better questions and conducting deeper analysis.